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FIN46R

Flash Cards for FIN 46R

QuestionAnswer
A qualifying SPE must be legally distinct from the originating enterprise
In a joint venture, if an entity has the majority of risks and rewards, that entity must consolidate under FIN 46R
In a _____ a SPE is set up to purchase assets using borrowed money and then lease them to a particular party. Synthetic lease.
One of the main purposes of _____ is to address off balance sheet financing and require consolidation. FIN 46R
An entity can have a variable entity ownership by owning an interest in in an entity that exposes the holder to the fluctuations in the fair value of the entity.
Assets of the entity are usually not a variable interest since assets normally create, but do not absorb, the variability of the entity.
Equity issued by the entity is almost always a variable interest because it absorbs the variation in value.
Liabilities of the entity are usually variable interests because a decrease in the fair value of an entity's assets could be large enough to force the creditors to absorb that decrease.
______ debt is almost always a variable interest subordinated debt
In general, assets are not variable interests because they are the creators of the variability in the entity.
Generally the holders of the liabilities and equity of the entity hold variable interests because they absorb the variability created by the assets of the entity
FIN 46(R) defines a business as: a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors.
The first condition for the business scope exception is that the enterprise, its related parties, or both participated significantly in the design or redesign of the entity.
A variable interest entity either: does not have enough equity at risk to fund its operations without additional financial support or is an entity in which equity investments, by themselves, do not provide control over the entity.
A guarantee of the value of an asset whose fair value is less than half of the fair value of the entity's assets is not a variable interest in the entity unless the enterprise has other variable interests in the entity).
If the fair value of the specific asset or assets is more than 50% of the total fair value of the entity's assets, the variable interest in the specified asset or assets is considered to be a variable interest in the entity itself
a variable interest in a specific asset that is less than 50% of the total fair value of the entity's assets is not a variable interest in the entity.
A variable interest in a specific asset will not, by itself, cause an enterprise to be a primary beneficiary.
A variable interest entity has to be consolidated when it has a primary beneficiary.
The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests
Variable interests are the ownership, contractual, or other pecuniary interests in an entity that change with changes in the fair value of the entity's net assets exclusive of the variable interests.
An equity interest is a variable interest because equity investment in Combo is an ownership interest that will vary with changes in the fair value of Combo's net assets. It will it will absorb at least a portion of the business variability
A business is not subject to FIN 46R unless an equity owner or related parties participated significantly in the design or redesign of the entity
The business exception is not met if the enterprise and its related parties provide more than half of the total of the equity, subordinated debt, and other forms of subordinated financial support
This model requires the enterprise that bears the majority of the risks and rewards of a variable interest entity, if there is one, to consolidate that entity
An entity is a variable interest entity if the total equity investment at risk is not sufficient to permit the entity to finance its activities, regardless of whether the holders lack any of the essential characteristics of a controlling financial interest.
An entity is not a variable interest entity if the total equity investment at risk is sufficient and if the holders have all of the essential characteristics of a controlling financial interest
Created by: billwilsonfamily